Delaware Journal of Corporate Law o Copyright 2000 by The Widener University School of Law VOLUME 2 2000 NUMBER 1 SYMPOSIUM THE NEXT CENTURY OF CORPORATE LAW PREFACE This issue is an edited and annotated transcript of the proceedings at a symposium on the Next Century of Corporate Law, held on May 20-21 1999, at the DuPont Country Club, Wilmington, Delaware. The symposium tly by widener University School of Law and the Corporate Law Section of the Delaware State Bar Association We acknowledge with gratitude the following persons for their support of the conference reported in this issue E. dupont de nemours co and CSC/The united states c providers of major funding for the conference Members of the conference planning committee Frederick H. Alexander, Esquire Roger w. Arrington, Esquire Jesse A. Finkelstein, Esquire Michael D Goldman, Esquire Prof Professor Ann C. Stilson Edward P. Welch, Esqu
1 Delaware Journal of Corporate Law © Copyright 2000 by The Widener University School of Law VOLUME 25 2000 NUMBER 1 SYMPOSIUM THE NEXT CENTURY OF CORPORATE LAW May 20-21, 1999 PREFACE This issue is an edited and annotated transcript of the proceedings at a symposium on the Next Century of Corporate Law, held on May 20-21, 1999, at the DuPont Country Club, Wilmington, Delaware. The symposium was sponsored jointly by Widener University School of Law and the Corporate Law Section of the Delaware State Bar Association. We acknowledge with gratitude the following persons for their support of the conference reported in this issue: E.I. duPont de Nemours & Co. and CSC/The United States Corporation Company, providers of major funding for the conference. Members of the conference planning committee: Frederick H. Alexander, Esquire Roger W. Arrington, Esquire Jesse A. Finkelstein, Esquire Michael D. Goldman, Esquire Professor Lawrence A. Hamermesh Professor Ann C. Stilson Edward P. Welch, Esquire
DELAWARE JOURNAL OF CORPORATE LAW Tol WELCOME DOUGLAS E. RAY DEAN WIDENER UNIVERSITY SCHOOL OF LAW DEAN RAY: Good morning. My name is Douglas Ray. It is my pleasure to welcome you on behalf of the faculty and of the Widener University School of Law. I would like to express our appreciation to the Delaware State Bar Association for co-sponsoring this program and to the Du Pont Company and CSC, the United States Corporation Company for their financial support of this program. Our law school is very proud to be associated with what promises to be an outstanding program, and we're very grateful to all of the distinguished presenters and commentators who will be sharing their expertise and insights wi ver the next two d I am pleased to report that these proceedings will be printed in widener's Delaware Journal of Corporate Law. It promises to be an outstanding In my first four months as Dean of widener's Law School, I've discovered how lucky we are to be the only law school in Delaware. There is a wealth of legal talent on the bench and in the bar, and I'm particularly ateful to the members of the Delaware Supreme Court, Chancery Cour and Superior Court, and to the many members of the Delaware Bar who regularly provide their time and talent to our School. I am proud to be associated with the members of the Widener full-time and adjunct faculty who will be part of this program I'd like to make special note of Widener Professor Larry Hamermesh, one of the people instrumental in putting this program togeth Professors Hamermesh, Stilson, and Regan of our full-time faculty will be on the program, and I'm proud of the expertise in this field they bring to our School. Professor Hamermesh has asked me to thank all of you who worked on the program, and, in particular, to thank Chief Justice Veasey for his counseling and assistance at every step in the development of the Corporation Law is headed in the next century. Given its evolution over first hundred years into one of our most important legal institutions, this is no easy task. Fortunately, we are honored to have with us some of the worlds most expert scholars, corporate and government leaders, and judges to help us. It is a privilege for the Widener University School of Law to join the Delaware State Bar Association in presenting this timely program d like now to introduce one of the talented people who made this program a real ity, Mr. Craig B. Smith, Chair of the Corporate Law Section of the delaware State Bar Association
2 DELAWARE JOURNAL OF CORPORATE LAW [Vol. 25 WELCOME DOUGLAS E. RAY, DEAN WIDENER UNIVERSITY SCHOOL OF LAW - - - - - DEAN RAY: Good morning. My name is Douglas Ray. It is my pleasure to welcome you on behalf of the faculty and students of the Widener University School of Law. I would like to express our appreciation to the Delaware State Bar Association for co-sponsoring this program and to the Du Pont Company and CSC, the United States Corporation Company, for their financial support of this program. Our law school is very proud to be associated with what promises to be an outstanding program, and we're very grateful to all of the distinguished presenters and commentators who will be sharing their expertise and insights with us over the next two days. I am pleased to report that these proceedings will be printed in Widener's Delaware Journal of Corporate Law. It promises to be an outstanding issue. In my first four months as Dean of Widener's Law School, I've discovered how lucky we are to be the only law school in Delaware. There is a wealth of legal talent on the bench and in the bar, and I'm particularly grateful to the members of the Delaware Supreme Court, Chancery Court, and Superior Court, and to the many members of the Delaware Bar who regularly provide their time and talent to our School. I am proud to be associated with the members of the Widener full-time and adjunct faculty who will be part of this program. I'd like to make special note of Widener Professor Larry Hamermesh, one of the people instrumental in putting this program together. Professors Hamermesh, Stilson, and Regan of our full-time faculty will be on the program, and I'm proud of the expertise in this field they bring to our School. Professor Hamermesh has asked me to thank all of you who worked on the program, and, in particular, to thank Chief Justice Veasey for his counseling and assistance at every step in the development of the symposium. Our purpose today is to examine where the Delaware General Corporation Law is headed in the next century. Given its evolution over its first hundred years into one of our most important legal institutions, this is no easy task. Fortunately, we are honored to have with us some of the world's most expert scholars, corporate and government leaders, and judges to help us. It is a privilege for the Widener University School of Law to join the Delaware State Bar Association in presenting this timely program. I'd like now to introduce one of the talented people who made this program a reality, Mr. Craig B. Smith, Chair of the Corporate Law Section of the Delaware State Bar Association
20001 THE NEXT CENTURY OF CORPORATE LAW INTRODUCTION CRAIG B SMITH. CHAIR CORPORATION LAW SECTION OF THE DELAWARE STATE BAR ASSOCIATION MR SMITH: Dean Ray, thank you very much On behalf of the Corporation Law Section of the Delaware State Bar Association, I extend our welcome and good morning to all of you By definition, this Symposium presupposes change. That is both a safe and obvious supposition. We know corporation law will change. But we don,'t know exactly how. Fortunately, over the next day and a half, we will benefit from as accurate a prediction of the future of corporation law as can presently be formulated Unlike some. i do not believe that change is in and of itself necessarily good. Nor do I believe that everyone adapts well to change Indeed, given the pace of change today, particularly in a field such as communications technology, I fear at times we move too fast. We assume change is beneficial, and proceed without due reflection on the implications of the changes thrust upon us, and without regard for the limits on our human capacity to adjust to constant material change in the business of life take great comfort, therefore, that in the changes made to the considerable due diligence. Change typically comes about slowly and as the product of debate and deliberation Still, contemplating this Symposium, I found myself in need of a little reassurance. I started with the most basic of corporate tasks incorporation- something that today is simple, instantaneous and possible thout I I was surprised and I must say a little bit awed by the gravity attached to the incorporation process prior to the enactment in March of 1899 of the Delaware General Corporation Law. It is interesting to review what you had to do to create a Delaware corporation a hundred years ago You started with a certificate of incorporation that had to be signed by at least three persons, two-thirds of whom had to be citizens of Delaware, and which was submitted to an associate judge of the Superior Court in the county in which the corporation was to have its principal office or conduct its principal business. The application could only be submitted during a vacation of the Court, and only if notice had been published in newspaper at least 30 days prior to the subm of the application
2000] THE NEXT CENTURY OF CORPORATE LAW 3 INTRODUCTION CRAIG B. SMITH, CHAIR CORPORATION LAW SECTION OF THE DELAWARE STATE BAR ASSOCIATION - - - - - MR. SMITH: Dean Ray, thank you very much. On behalf of the Corporation Law Section of the Delaware State Bar Association, I extend our welcome and good morning to all of you. By definition, this Symposium presupposes change. That is both a safe and obvious supposition. We know corporation law will change. But we don't know exactly how. Fortunately, over the next day and a half, we will benefit from as accurate a prediction of the future of corporation law as can presently be formulated. Unlike some, I do not believe that change is in and of itself necessarily good. Nor do I believe that everyone adapts well to change. Indeed, given the pace of change today, particularly in a field such as communications technology, I fear at times we move too fast. We assume change is beneficial, and proceed without due reflection on the implications of the changes thrust upon us, and without regard for the limits on our human capacity to adjust to constant material change in the business of life. I take great comfort, therefore, that in the changes made to the Delaware General Corporation Law, there is as a general rule of considerable due diligence. Change typically comes about slowly and as the product of debate and deliberation. Still, contemplating this Symposium, I found myself in need of a little reassurance. I started with the most basic of corporate tasks — incorporation — something that today is simple, instantaneous and possible without lawyers. I was surprised and I must say a little bit awed by the gravity attached to the incorporation process prior to the enactment in March of 1899 of the Delaware General Corporation Law. It is interesting to review what you had to do to create a Delaware corporation a hundred years ago. You started with a certificate of incorporation that had to be signed by at least three persons, two-thirds of whom had to be citizens of Delaware, and which was submitted to an associate judge of the Superior Court in the county in which the corporation was to have its principal office or conduct its principal business. The application could only be submitted during a vacation of the Court, and only if notice had been published in a newspaper at least 30 days prior to the submission of the application
DELAWARE JOURNAL OF CORPORATE LAW Tol. The associate judge was required to determine articles and conditions in the certificate of incorporation were lawful and not the community. If the associate judge made those determinations, then the judge would direct the certificate to be filed in the records of the Superior Court and order the prothonotary to publish in a newspaper for at least three weeks notice that application had been made to grant the certificate of incorporation. If no one appeared and objected and made no showing as to why the certificate should not be granted the associate judge was permitted, at the next term of the court, to direct that the certificate, with the judges endorsement thereon, be filed in the office of the Secretary of State and a copy, certified by the Secretary of State ecorded in the Recorder's office of the county in which the application had been made. Only upon county recordation did the corporate existence commence Today, of course, we do it differently. Anyone with a credit card can log onto the internet and through an incorporating service form a Delaware corporation with the click of a mouse Certainly the process has been simplified. I doubt anything has been oning the requirement that a judge determine at the outset that the content of the certificate of incorporation is lawful and not injurious to the community. And I feel comfortable saying that the judges of our Superior Court do not miss having to pass upon the legality of the provisions in certificates of incorporation. But I wonder how radical a change it must have seemed in 1899 to move away from that procedure? What contemporaneous fears and values, long since abandoned, found expression in those requirements of a century ago? We will face a similar inquiry in the immediate future. The Corporation Law Section has underway a comprehensive review of the Delaware General Corporation Law to determine how the law may be best modified to accommodate modern technology. We are sensitive to increasing demand from corporations for virtual stockholders meetings, for electronic communication of notices of meetings, proxies and other corporate documents, and similar changes to take advantage of cost reductions and accelerated communications made possible by the internet and similar innovations We must confront the impact of technology on communications and commerce in general, and the resultant impact on what business expects from our corporation laws. In the process, we must also re-examine some long-standing corporate principles that may stand in the way of change Ultimately, we must decide whether those principles have continued vitality d, if so, are they sufficiently important to the integrity of our corporation law that we must resist the pressure for change? Can Delaware resist such pressure and maintain its pre-eminence in corporate law?
4 DELAWARE JOURNAL OF CORPORATE LAW [Vol. 25 The associate judge was required to determine that the objects, articles and conditions in the certificate of incorporation were lawful and not injurious to the community. If the associate judge made those determinations, then the judge would direct the certificate to be filed in the records of the Superior Court and order the Prothonotary to publish in a newspaper for at least three weeks notice that application had been made to grant the certificate of incorporation. If no one appeared and objected and made no showing as to why the certificate should not be granted, the associate judge was permitted, at the next term of the court, to direct that the certificate, with the judge’s endorsement thereon, be filed in the office of the Secretary of State and a copy, certified by the Secretary of State, recorded in the Recorder’s office of the county in which the application had been made. Only upon county recordation did the corporate existence commence. Today, of course, we do it differently. Anyone with a credit card can log onto the internet and through an incorporating service form a Delaware corporation with the click of a mouse. Certainly the process has been simplified. I doubt anything has been lost by abandoning the requirement that a judge determine at the outset that the content of the certificate of incorporation is lawful and not injurious to the community. And I feel comfortable saying that the judges of our Superior Court do not miss having to pass upon the legality of the provisions in certificates of incorporation. But I wonder how radical a change it must have seemed in 1899 to move away from that procedure? What contemporaneous fears and values, long since abandoned, found expression in those requirements of a century ago? We will face a similar inquiry in the immediate future. The Corporation Law Section has underway a comprehensive review of the Delaware General Corporation Law to determine how the law may be best modified to accommodate modern technology. We are sensitive to increasing demand from corporations for virtual stockholders’ meetings, for electronic communication of notices of meetings, proxies and other corporate documents, and similar changes to take advantage of cost reductions and accelerated communications made possible by the internet and similar innovations. We must confront the impact of technology on communications and commerce in general, and the resultant impact on what business expects from our corporation laws. In the process, we must also re-examine some long-standing corporate principles that may stand in the way of change. Ultimately, we must decide whether those principles have continued vitality and, if so, are they sufficiently important to the integrity of our corporation law that we must resist the pressure for change? Can Delaware resist such pressure and maintain its pre-eminence in corporate law?
20001 THE NEXT CENTURY OF CORPORATE LAW For example, today a director must attend board meetings in person even if the attendance is only by an electronic means that allows the director to hear and be heard by all other directors. Are we willing to substitute an on-line chat room format for directors' meetings? If not, why not? Is our resistance well-founded or based on out-moded traditions and values of marginal importance, values that, like those that 100 years ago made incorporation a judicial matter, embody once legitimate concerns that developments in our society have rendered of little or no consequence? And what of globalization? Delaware corporations are operating all over the world. Increasingly, they are being formed by persons from foreign countries to conduct business in those countries not in Delaware or even the United States. At what point, then, will Delaware begin to feel pressure to modify its corporation laws to accommodate the business practices, for example shares registered in bearer form, of other cultures? Thus, I have no doubt that corporation law in the twenty-first century will involve material changes that will challenge some of the fundamental Law- principles some of us may hold sacrosanct I look forward, as I hope you do, to the next day and a half and the insights of our speakers into the challenges the future likely holds for the Delaware General Corporation Law, the benefits that change promises to bring about, the potential dangers to our corporation law that may accompany change, and just how difficult, or easy, or wise, change may be Thank you very much
2000] THE NEXT CENTURY OF CORPORATE LAW 5 For example, today a director must attend board meetings in person, even if the attendance is only by an electronic means that allows the director to hear and be heard by all other directors. Are we willing to substitute an on-line chat room format for directors’ meetings? If not, why not? Is our resistance well-founded, or based on out-moded traditions and values of marginal importance; values that, like those that 100 years ago made incorporation a judicial matter, embody once legitimate concerns that developments in our society have rendered of little or no consequence? And what of globalization? Delaware corporations are operating all over the world. Increasingly, they are being formed by persons from foreign countries to conduct business in those countries, not in Delaware or even the United States. At what point, then, will Delaware begin to feel pressure to modify its corporation laws to accommodate the business practices, for example shares registered in bearer form, of other cultures? Thus, I have no doubt that corporation law in the twenty-first century will involve material changes that will challenge some of the fundamental principles behind various provisions in the Delaware General Corporation Law — principles some of us may hold sacrosanct. I look forward, as I hope you do, to the next day and a half and the insights of our speakers into the challenges the future likely holds for the Delaware General Corporation Law, the benefits that change promises to bring about, the potential dangers to our corporation law that may accompany change, and just how difficult, or easy, or wise, change may be. Thank you very much